Airlines are positioned to save $1.75 billion in MRO costs between now and 2022 by tapping engines on idled aircraft instead of sending powerplants in need of shop visits to overhaul facilities, a new Oliver Wyman analysis reveals.
“When we think of green-time motors in the past, they used to be more expensive to fly,” so operators would’ve paid for them on a cyclic basis to avoid full restoration shop visit costs, says Derek Costanza, an Oliver Wyman partner. “Our analysis says the flip of that today: we have way more supply than demand, so we see an inversion in the market.”
Of the thousands of aircraft parked around the world, Oliver Wyman projects that 2,195 of them will retire early, “planes that would never have retired before” the dramatic demand downturn triggered by the novel coronavirus, says Costanza. For instance, Delta Air Lines announced on May 14 that it plans to retire its Boeing 777 fleet by the end of the year. “Eight of those aircraft are 11 years old on average,” and Delta just spent millions of dollars to reconfigure the entire 777 fleet, he says.
Narrowbodies make up the largest portion of the likely early-retirement fleet, at 37%, followed by regional jets, widebodies and turboprops (see chart). These aircraft are in addition to the 453 aircraft already scheduled to retire or go into storage before the pandemic forced airlines to park suddenly-excess capacity.
The early retirements will free up about 4,000 engines with at least 90-days of life remaining, and 60% of those powerplants will have more than 5,000 hours, according to Oliver Wyman’s analysis. Those are the most likely candidates to be rotated into the active fleet. Engines with less than 90 days of life left probably won’t make it on-wing again, because the cost-benefit of moving them between aircraft is not likely to favor using them, predicts Costanza.
While some of the green-time engines could provide up to four years of on-wing time, the majority will provide one or two years—enough to justify the logistical expenses of using them.
The effort to find and use green-time engines will be “fast and furious” for the next several years. Costanza says. Short-term, operators could face logistical challenges getting engines where they need to be, as the pandemic has created even higher demand for cargo flights, since passenger-aircraft belly space that accounted for much of freight’s capacity has diminished.
By 2022, the green-time engine impact on delayed maintenance expenditures should evaporate. In the interim, however, Oliver Wyman expects the green-time usage trend to reduce engine restoration shop visits 9% this year and 7% in 2021, which translates into $1.75 billion in avoided engine MRO expenses.
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